Euro shares drop as crisis fund launched

LONDON/LUXEMBOURG -- Europe's main stock markets fell on Monday, with traders on edge as eurozone finance ministers trying to get on top of the region's debt crisis established a landmark financial firewall in Luxembourg.

In late trading, London's benchmark FTSE 100 index of top companies slid 0.55 percent to stand at 5,838.56 points, Frankfurt's DAX 30 shed 1.28 percent to 7,303.18 points and in Paris the CAC 40 was 1.11 percent lower at 3,418.54.

In foreign exchange activity, the euro dipped to US$1.2970 from US$1.3031 late in New York on Monday.

In New York, U.S. stocks also gave up some of the gains recorded last week.

A half-hour into trade, the blue-chip Dow Jones Industrial Average was down 0.30 percent, the broad-based S&P 500 dropped 0.40 percent and the tech-rich Nasdaq Composite fell 0.46 percent.

“Whether the market reorients its thinking from central bank support to the weakening fundamental picture remains to be seen,” said Patrick O'Hare of Briefing.com.

“The third quarter earnings reporting season, which begins this week with Alcoa's report after the close on Tuesday, has the potential to shift the market's perspective.”

Back in Europe, the eurozone launched its much-awaited 500-billion-euro (US$650 billion) rescue fund, a positive backdrop for finance ministers trying to settle Greece's tortuous debt bailout as Spain worked to avoid having to seek a rescue of its own.

Finance ministers of the 17-nation euro bloc met just 10 days before the EU's 27 leaders were to gather in Brussels, with recent market calm giving them breathing room after months of turmoil and anxiety over Spain's future.

The European Stability Mechanism (ESM) is a major step forward in the eurozone's defenses against a debt crisis that has helped push the bloc back into recession.

At the same time, the economic landscape is not encouraging however, with the most recent data showing Europe back in recession and threatening to slip further into the doldrums.

EU officials on Friday said they do not expect Greece to get the green light, either in Luxembourg or at the Oct. 18-19 Brussels summit, for the resumption of its drip-feed bailout after differences with its EU, European Central Bank and International Monetary Fund creditors.

Greek Prime Minister Antonis Samaras said on Friday that the country could not take more tough medicine and that if its next aid instalment, worth 31.5 billion euros (US$40.6 billion), did not arrive soon, then by November the state's coffers would be empty.

German Chancellor Angela Merkel is due in Greece on Tuesday and her visit may allow some easing of the tensions which have built up. However, a senior EU official said Friday that the October summit comes “considerably too early” to resolve the problems.

The position has become more complicated after eurozone hardliners Germany, the Netherlands and Finland questioned commitments made at a June EU summit, which notably agreed that the ESM would be able to recapitalize banks directly once a single banking supervisor was in place, potentially by the end of the year.

The three said the ESM should not be used to help banks bailed out before it became operational. The three countries were taking a stand on “legacy assets” that must have been “very unwelcome” for Spain and bailed-out Ireland, another EU official said.

In the run-up to the eurozone and EU finance ministers' meeting in Luxembourg on Monday and Tuesday, Spain has been in the spotlight over whether or not it would ask for a bailout, thereby activating the ESM and action by the ECB.

The ECB has said it will intervene, buying up government bonds to bring down their borrowing costs but only if a member state first asks the ESM for help — which will also come with conditions for reforms.